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If approached in the proper manner, rental properties can be consistently profitable investments. Well-maintained properties in areas with robust housing demand stand to generate a fortune in rental income each month, effectively paving the way for the long-term prosperity of their respective owners. Unfortunately, investors who lack experience and/or patience often fail to fully capitalize on fantastic rental opportunities. Fledgling property investors looking to see the maximum ROI on their first rental properties would do well to consider the following tips.
Form A Solid Understanding Of The Local Rental Market
There’s a reason why so many real estate investors constantly emphasize location – it’s the most important factor in virtually any investment. Needless to say, rental properties are no exception. So, before committing to purchase a rental property, it’s imperative that you form a solid understanding of the local rental market. For example, you’ll need to determine how much demand for housing exists in the city, township, or neighborhood in which the property is based. Investing in a rental property in an area with minimal demand is unlikely to produce the returns you’re hoping for, regardless of how well-kept or amenity-rich said property is.
You’ll also need to study local rent prices. Researching the rental rates attached to properties similar to the one that’s caught your interest will give you a good idea of how much rent you’ll reasonably be able to charge tenants. When it comes to advanced real estate investing strategies, you can’t go wrong with meticulous location research.
Determine Upkeep And Maintenance Costs
While smaller rental properties sometimes require minimal upkeep and maintenance, this isn’t often the case for multi-family properties. For example, if you’re interested in purchasing a large apartment complex, you should be prepared to spend thousands in upkeep costs each month. To start with, you’ll need to consider the salaries of full-time maintenance personnel. If the property in question is home to dozens – or hundreds – of units, there’s simply no way around hiring dedicated maintenance staff.
Additionally, the size, age, and overall condition of the property are likely to feature heavily in your monthly maintenance costs. Unsurprisingly, properties that are old and/or poorly maintained are practically guaranteed to have more issues than those that received a high level of care from their previous owners. It’s also a good idea to set aside funds for unforeseen maintenance emergencies. After all, no matter how well-kept property is, the occasional maintenance emergency is practically unavoidable, and preparing for this eventuality can ensure that you’re prepared to face it head-on.
Don’t Skimp On Tenant Screening
If this is your first time investing in a rental property, it’s easy to see why you might shy away from screening prospective tenants. After all, the screening process can be somewhat time-consuming, and as long as applicants are able to make a good first impression in person or over the phone, many fledgling property owners have no qualms about going with their gut. However, as they often come to discover, this approach to vetting tenants is highly flawed.
As a property owner, the absolute last thing you want is to be stuck with a tenant who’s unwilling or unable to pay rent. Additionally, depending on where you’re located, the eviction process can prove extremely challenging. So, in the interest of preventing unreliable tenants from impeding the profitability of your property, take the time to screen every prospective renter who submits an application.
After obtaining an applicant’s permission, have a look at their credit score, income situation, and criminal history. For example, on the income front, many property owners require applicants to make at least thrice the cost of rent each month, as this ensures that they’re able to comfortably afford rent without cutting into other living expenses. You should also request that applicants provide references – preferably employers and former landlords – and make a point of contacting any references they list.
A good rental property can be among the smartest investments you ever make. However, investing in the wrong property or failing to properly maintain a rental can ultimately cost you more money than you ever stood to make. So, if this will be your first foray into rental property investment, it’s in your best interest to approach this purchase with caution and do the necessary research. Anyone hoping to generate sizable returns with their first rental property can benefit from the advice outlined above.